SCOTLAND faces the prospect of low or no growth for the remainder of 2012, according to the latest Bank of Scotland Purchasing Managers’ Index (PMI) report.

The monthly report said the start to the third economic quarter had been “challenging” for Scottish businesses, with manufacturers reporting the biggest drop in the number of goods they produced for more than 18 months.

Yet a further rise in activity in the services sector helped the index to stay just above the 50 mark that indicates growth rather than contraction, with the index dipping to 51 from 52.5 in June.

Scotland also fared better than the UK as a whole, which reported a contraction in economic activity.

Donald MacRae, chief economist at Bank of Scotland, said: “The July PMI suggests growth in the private sector of the Scottish economy was marginal with a fall in manufacturing output offset by continuing growth in service activity.

“The Scottish economy is struggling to maintain growth momentum in the face of the global slowdown. Low or no growth is in prospect for the rest of 2012.”

The report also found that Scottish businesses, mainly those operating in the services sector, continued to recruit staff last month but at a slower pace than in the previous periods.